Fonterra CEO Miles Hurrell. Fonterra reported profit after tax from continuing operations of $1 billion. Photo / NZME
Fonterra CEO Miles Hurrell. Fonterra reported profit after tax from continuing operations of $1 billion. Photo / NZME
A lift in Fonterra’s forecast earnings range demonstrates continued strong performance by the company and can be expected to fuel new signs of “quiet confidence” among its farmer-owners.
That’s the view of the dairy heavyweight’s farmer watchdog council on Wednesday’s third quarter 2024 results, and milk payment forecasts forthe current season and the new dairy season which opens on June 1.
Fonterra announced a profit after tax from continuing operations of $1b, up $20m or equivalent to 61c per share, on the corresponding previous period.
(Continuing operations earnings excluded earnings from discontinued operations. In FY24 these were DPA Brazil and in FY23, DPA Brazil, Chilean business Soprole and China Farms).
The farmer-owned co-operative and New Zealand’s biggest business lifted its FY24 continuing operations earnings range from 50-65c a share to 60-70c a share.
Continuing operations earnings before interest and tax were $1.4b, compared with $1.5b. Total group earnings per share at 58c was down from 81c. Return on capital was 11.9 per cent (11.7 per cent), expected to taper in Q4 to 10-11 per cent for the full year. The gearing ratio was 35.2 per cent, up from 34.2 per cent in the previous period.
Council chairman John Stevenson said farmer-shareholders would be happy with the raised earnings forecast which “demonstrates continued strong business performance”.
Price relativities between sales channel stream returns had started to narrow towards the end of Q3, Stevenson said.
These are the relativities between Fonterra’s so-called “reference” product earnings, which determine the farmgate milk price farmers receive, and non-reference products.
“If they narrow, traditionally, that puts pressure on business performance. It means a higher input cost (payment for milk) and traditionally it’s been harder to pass it through and maintain margins,” Stevenson said.
Fonterra’s 8000 farmer-shareholders would be closely watching how the price relativities panned out in Q4 “as they reflect what we end up getting paid into our bank accounts at the end of the season”.
Fonterra Co-operative Council chairman John Stevenson.
Fonterra left the current season’s forecast farmgate milk price midpoint unchanged at $7.80/kg milksolids but narrowed the range to $7.70-$7.90.
Stevenson said farmers welcomed Fonterra using its strong balance sheet to increase its advance milk payment - getting cash out to farmers earlier as they’d requested - at the tail end of this season.
The company announced an opening 2024-2025 season forecast farmgate milk price of $7.25-$8.75/kg with a midpoint of $8.
Stevenson said the company’s confirmation of a 75 per cent advance rate for the new season was also good for early new season cashflows.
“There’s a long way to go on that [new season forecast] figure but we’re seeing some quiet confidence among farmers and around the industry at the moment.”
He couldn’t yet pinpoint the reasons but said the confidence was revealed in the council’s just-completed annual survey of farmers.
The survey results inform the council’s annual letter of expectations to Fonterra’s board.
“What we’ve seen out of that is an increase in confidence in the New Zealand dairy industry and in Fonterra itself. We’re carrying out an analysis of that data.”
Fonterra chief executive Miles Hurrell said the co-operative’s foodservice and consumer channels in particular had a strong third quarter with a lift in earnings. This had enabled the company to lift its forecast FY24 continuing operations earnings. Performance in the ingredients sales channel was down year-on-year following record highs of FY23, he said.
On the new season payout forecast, Hurrell said given the uncertainty in outlook and ongoing risk of global market volatility, the company was starting the season “with a cautious approach”.
Fonterra farmer-only shares (FCG) closed 4.51 per cent down at $2.75 on Wednesday. The unit price in the Fonterra Shareholders’ Fund (FSF) was up 2.7 per cent at $3.81.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.
